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A new perspective on quality.


The U.S. health care sector consumes nearly 13 percent of our nation's gross national product, $800 billion annually. Our nation allocates the highest amount per capita to health care in the world. Yet many measures of health care outcomes from these expenditures are inferior to other developed nations. The American health care system costs too much, excludes too many, fails too often, contains much excessive and inappropriate care, and knows too little about the effectiveness of the things it does. The purpose of this article is to discuss current payers' perspectives on the potential for quality improvement in the U.S. health care system.

Value is defined as the relationship between quality and cost. For a given level of quality, a service or product at a lower cost provides greater value. Mathematically, this can be shown as follows:

V = Q/C, where V = Value, Q = Quality, and C = Cost

For decades, the health care professions have implicitly equated quality with the provision of more services and more technologically sophisticated health care. The effects of this emphasis on the costs of health care. The effects of this emphasis on the costs of health care are self-evident. Quality improvement shifts its focus to define quality in health care in terms of its value. Total quality management (TQM) redefines quality as a continuous effort by all members of an organization to meet the needs and expectations of customers. The concept of the customer is broadened to include all those who are interdependent in a system. For health care, this would include payers, providers, employers, and patients.

The fundamental postualtes of TQM are to reduce variation; improve quality; and, in the process, reduce costs. These efforts increase value. A new managerial view must occur, the characteristics of which are:

* Leadership support for quality improvement.

* Focus on processes in the system.

* Elimination of variation.

* Revised strategies for personnel management.

There currently exists a great deal of variation in the quality and the efficiency of health care services delivered by providers. Efficiency here means provision of high-quality health care with a minimum of waste. Wennberg's classic small area variation studies(1) and Chassin and Kosecoff's RAND Corporation studies(2) on high inappropriateness rates of common medical and surgical procedures all point to variation in the delivery of health care services. There variations are unexplained by analysis of demographic and other medical factors in local populations. Patterns of care are explainable more on the basis of "the way things have always been done here" rather than systematic evaluation of what works and what doesn't work. There are no, or at best few, standardized "best practices" for many common medical and surgical conditions in the United States.

The effect on health care costs of these variations is considerable. Payers continue to unwittingly subsidize these variations. Only recently have payers been able to influence providers to evaluate patterns of care and change them to improve quality and efficiency.

Current Efforts for Control

Historically, payers have directed efforts to inspecting all providers in an effort to control health care costs. Preadmission review and retrospective claims reviews are the most frequent tools. In addition, negotiating discounts with providers is commonly used. These unfocused efforts treat all providers equally and ignore the fact that many providers deliver high-quality and efficient health care. Until recently, payers have lacked information on who is providing high-quality and efficient health care and who is not. Without this information, payers and consumers do not know the value of the health care that they purchase.

In effect, payers have relied totally on inspection, instead of motivating providers to improve the system. The word "system" as used here applies the concepts of systems theory. A system in this context is something that uses inputs, transforms them inputs through many interdependent processes, and creates outputs. TQM emphasizes building quality into the process, not inspecting it in. When quality improvement is approached through understanding the "system" and not just the individual, greater promise exists for improving health care delivery.

Motivating Providers to Change

Providing direct, specific, and repeated feedback to individuals or organizations about outcomes, coupled with incentives, can lead to changes in physician practice patterns, with movement toward providing greater efficiency and value. These concepts can and are being implemented in the improvement of the health care system. This is best seen in staff model HMOs, because of the greater degree of organization in this model. However, less organized systems for health care delivery, such as PPOs and group, network, and IPA model HMOs, can also be motivated to improve.

The critical success factor for feedback regarding the outputs of a system is information. Payers have large databases of claims data that are now being converted to management information, which integrates financial with medical data. This information shows the great variation in quality and efficiency of the health care services. Provider profiles, adjusted for age/sex and severity, will be used to identify "proven performers" in PPOs and other systems. For those local systems where improvement is needed, this information will create strong incentives for change.

Payers will become prudent purchasers of health care. This will allow selective contracting with efficient delivery systems of proven quality. The hour is late. There is a national chorus among the public and government to "do something." One of the options is a nationalized health care system with strong cost controls. These controls will likely include explicit rationing

and place considerable limits on personal and professional choices. It's been said such a system will have the compassion of the IRS and the efficiency of the Post Office, all at Pentagon prices.

Berwick, in a seminal work on continuous improvement in health care, writes in concrete terms about an alternative to such a nationalized system.(3) Berwick stresses the need for physician managers to become directly involved in the quality improvement process and explore its potential for stimulating dramatic improvements in clinical practice. Physician executives are in a unique position to influence this change process. The results of TQM have been proven repeatedly in other manufacturing and service industries. Are we in health care presently in a position to maintain credibility with our customers of health care by saying, "but health care is different"? I think not.

Instituting TQM to improve our fragmented health care system will allow greater efficiencies and value for all parties involved: payers, providers, employers, and consumers. Payers are becoming instrumental in the development of integrating mechanisms for the health care system. By combining cost data with outcome analysis, payers are in a unique position to present health care consumers with the most value for their health care dollars.


(1.) Wennberg, J. "The Paradox of Appropriate Care." JAMA 258(18): 2568-9, Nov. 13, 1987.

(2.) Chassin, M., and others. "Does Inappropriate Use Explain Geographic Variations in the Use of Health Care Services? A Study of Three Procedures." JAMA 258(18):2533-7, Nov. 13, 1987.

(3.) Berwick, D. Curing Health Care. San Francisco, Calif.: Jossey-Bass, 1990.
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Title Annotation:Third-Party Payer
Author:Schroeder, Norman J., II
Publication:Physician Executive
Date:May 1, 1992
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